#025: It's a hot Fed summer
A few things real estate operators need to be aware of at the Federal level, from interest rates to antitrust cases and AI guidance.
What an interesting start to the summer it has been. This edition of The Headline focuses on a few events to pay attention to nationally because they affect every local market.
Those highly anticipated rate cuts? Inflation’s still a bit too hot.
Inflation has proved to be stubborn to tame, and last week the central bank voted to maintain the current federal funds rate in the range of 5.25-5.5%. Essentially, no change since July 2023, when we reached the highest rate levels in 23 years.
At the end of last year, there had been some hope of several rate cuts in 2024, and now the guidance is that while there’s been some progress on lowering inflation, it’s very much still here. The Fed, which had forecast 0.75% of rate cuts in 2024 at the end of the year, is now pushing that out—and anticipating just one rate cut this year. That sticky 2% inflation target is still out of range before a cut can proceed.
Fed Chairman, Jerome Powell, summed it up: "Rate cuts that might have taken place this year, take place next year. By year-end 2025 and 2026, you are almost exactly where you would have been — it's just later."
What does that mean? All borrowing—whether a business loan or a mortgage—stay elevated for longer.
Rent price scrutiny just got real spicy with an FBI raid.
Speaking of inflation, one major driver that has Americans really feeling it is rent increases. Isolating for rental costs the last decade, rent inflation has outpaced overall inflation numbers by 40.7%. More recently, rents in cities have risen up to 1.5X more than wages in the last 4 years: nationwide rent prices have gone up 30.4% while wages have increased only 20.2% between 2019 to 2023.
It’s no wonder that the average American is unhappy with the state of housing. In fact, a recent Redfin survey says that 91% of voting-age Gen Z said housing affordability is the top issue in the upcoming election: surpassing hot topic issues such as the overall economy, education, abortion, gun control, preserving democracy, immigration, foreign wars, and student debt. Other adult generations chose the overall economy as a leading factor, though “at least 80% of every generation said housing affordability is an important factor” per Redfin.
It is then also no wonder that the Feds are paying close attention to what’s happening in the housing sector. To quickly sum up the FBI’s role in all of this, let’s take a quick step back:
Rental software company RealPage has come under scrutiny for its rent price suggestion product offering. The key issue is the type of data being used and market concentration of it—for instance in Phoenix, Arizona, almost 3 out of 4 of apartment units are managed by companies using this software.
The argument is that the way the pricing algorithm makes suggestions is not actually driven by demand, but by the prices of each of these companies. The government’s assertion is that when you have a majority of landlords using the same software to essentially pool pricing data, then it essentially becomes price fixing.
All of this has heated up immensely in the last couple of weeks with an unexpected FBI raid on a property management company’s corporate headquarters in Atlanta. That company issued a statement to confirm that the company and its employees are not direct targets of the investigation, but that the warrant was issued as “part of an ongoing investigation by the US Department of Justice into potential antitrust violations in the multifamily housing industry.”
Speaking of liability, the HUD just turned up the temperature for operators.
Last month, the US Department of Housing and Urban Development (HUD) issued guidance for housing and housing services providers on the use of AI technology in tenant screening.
It’s a 24-page document of prose, on which I am sure there are more patient people doing tear downs on. However, one key thing that has bubbled up to the surface with this is that just because an operator has engaged a third party (like their software provider) to make a suggestion on whether to approve or deny a tenant’s application does not mean the operator is free and clear of that decision.
In essence: it’s still your responsibility, even if you outsource it.
I recommend anyone managing rentals take a deep look at Section 3A (I’ve even pasted it below for you) for the extent of this liability—it’s broad and ultimately all ladders up to the housing provider. Technology companies should take heed of Section 3B: screening companies can be held liable even if the decision is ultimately made by the provider, so long as they play a role in displaying criteria or weighting of them.
My take on this? Even if this scope today is focused on tenant screening, when you look in aggregate at the extent affordable housing affects the US population, and other areas coming under scrutiny—operators and their service providers all need to take steps to ensure they are not introducing any new risks when it comes to the use of potentially shared or aggregated data.
In this age of AI, it’s much easier to build fast—but building responsibly and with an understanding of what’s coming from a regulatory perspective—that’s not something you can necessarily punt down the road. At least, it’s not something we at Super are willing to make a trade off.
A. Liability of Housing Providers
Under principles of direct liability, housing providers are responsible for ensuring their rental decisions comply with the Fair Housing Act even if they have largely outsourced the task of screening applicants to a tenant screening company. The screening company may be responsible too, but housing providers retain authority over screening practices and decisions at their properties. In addition, under principles of vicarious liability, a principal is liable for the actions of their agent done within the scope of the agent’s authority. A principal can be liable if the agency relationship is actual or if it is apparent. “A person is vicariously liable for a discriminatory housing practice by the person’s agent or employee, regardless of whether the person knew or should have known of the conduct that resulted in a discriminatory housing practice.” If a tenant screening company is an actual or apparent agent of a housing provider, any discriminatory action taken by the company can also be attributed to the housing provider.
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